Marketing Management
20th of June 2011
Communicating Customer
Value
Integrated Marketing
Communications Strategy
Total Promotion Budget and Mix
Setting Total Promotion Budget
• How much to spend on promotion??!
• How does a company decide on its
promotion budget?
• Four common methods to set total budget
for advertising
– Affordable Method
– Percentage of Sales Method
– Competitive-Parity Method
– Objective and Task Method
Setting Total Promotion Budget
• Affordable Method
– This involves setting the promotion budget at levels
management thinks the company can afford
– Usually used by small businesses with limited
resources
– This method ignores the effects of promotion on sales
– Places promotion last among spending priorities even
when it’s critical
– It leads to an uncertain annual promotion budget
– Long range market planning is thus difficult
– It often results in under spending; however, it can lead
to over spending
Setting Total Promotion Budget
• Percentage of Sales Method
– Involves the setting of promotion budget at a certain percentage
of current or forecasted sales or as a percentage of the unit
sales price
– Based on availability of funds and not opportunities
– Advantages of this method:
• Simple and easy to use
• Enables the construction of relationship behaviour – between
promotion spending, selling price, and profit per unit
– Disadvantages of this method:
• Wrongfully views sales as the cause of promotion rather than result
of promotion
• Strong brands with higher sales have biggest ad budgets
• Prevents increased spend to advance a turnaround in low sales
• Long range planning is difficult
• Relies on past and what competitors are doing
Setting Total Promotion Budget
• Competitive-Parity Method
– This is the setting of your promotion budget to match
competitors’ budgets
– Get industry promotion spending estimates from
publications and set based on industry average
– Advantages:
• Prevents promotional wars with competitors
• This involves the collective wisdom of the industry
– Disadvantages:
• Competition doesn’t have all the answers. What if wrong?
• No two companies are the same. Own promotional needs.
• No evidence that competitive parity prevents promotional
wars.
Setting Total Promotion Budget
• Objective and Task Method
– Involves setting the budget based on what it wants to achieve
with its promotions
– It’s the most logical budget setting method
– This method entails:
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Defining specific promotion objectives
Determining the tasks needed to achieve objectives
Estimating the costs of performing the tasks
The total sum of costs is the proposed budget
– Advantages:
• Accountability for spend through assumptions measured via results
achieved
– Disadvantages:
• It’s difficult to use – difficult to know which objectives will deliver
Shaping the Promotion Mix
• Nature of Each Promotion Tool
– Please refer to textbook Pages 440 – 442
• Promotion Mix Strategies
– Push or Pull Promotion Mix Strategies
– Push Strategy: A promotion strategy which utilises the sales
force and trade promotion to push products through the
channels. Producers promote the products to channel members
who promote it to consumers.
– Pull Strategy: A promotion strategy which relies on spending
plenty on advertising and consumer promotion to induce final
consumers to purchase products. This creates a demand
vacuum which pulls the product through the channels
Promotion Mix Strategies
Promotion Mix Strategies
Promotion Mix Strategies
• A Push Strategy uses personal selling and trade
promotions
• A Pull Strategy uses advertising and consumer
promotion
• Industrial goods companies mainly use push strategies
• Direct-marketing companies mainly use pull strategies
• Most large companies will use a combination of both pull
and push strategies
• Considerations when designing promotion mix strategies
(see pages 443 and 444):
– Type of product and market
– Product life cycle stage
Integrating the Promotional Mix
• Checklist for integrating marketing
communications, (see pages 444 and 445)
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Start with customer touch points
Analyze trends – internal and external
Audit pockets of communication spending
Gather together to plan communications
Create compatible themes, tones, quality across
communication media
– Create performance measures shared by all
communication elements
– Appoint a person responsible for persuasive
communication efforts
See you next time.
Cheers Guys!